Does Synopsys, Inc. (NASDAQ:SNPS) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Synopsys, Inc. (NASDAQ:SNPS) undervalued? Prominent investors are getting less optimistic. The number of long hedge fund positions were cut by 2 lately. Our calculations also showed that SNPS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SNPS was in 40 hedge funds' portfolios at the end of September. There were 42 hedge funds in our database with SNPS holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="600"] Cliff Asness of AQR Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the latest hedge fund action regarding Synopsys, Inc. (NASDAQ:SNPS).
What does smart money think about Synopsys, Inc. (NASDAQ:SNPS)?
Heading into the fourth quarter of 2019, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in SNPS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Synopsys, Inc. (NASDAQ:SNPS), which was worth $419.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $182.2 million worth of shares. Egerton Capital Limited, D E Shaw, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position One Tusk Investment Partners allocated the biggest weight to Synopsys, Inc. (NASDAQ:SNPS), around 5.86% of its portfolio. Tairen Capital is also relatively very bullish on the stock, dishing out 3.27 percent of its 13F equity portfolio to SNPS.
Seeing as Synopsys, Inc. (NASDAQ:SNPS) has experienced bearish sentiment from the smart money, logic holds that there were a few funds that elected to cut their entire stakes last quarter. It's worth mentioning that Anand Parekh's Alyeska Investment Group dumped the largest stake of the 750 funds followed by Insider Monkey, worth close to $94.1 million in stock. Lee Ainslie's fund, Maverick Capital, also said goodbye to its stock, about $35.6 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Synopsys, Inc. (NASDAQ:SNPS) but similarly valued. These stocks are Spotify Technology S.A. (NYSE:SPOT), Fresenius Medical Care AG & Co. (NYSE:FMS), Ameren Corporation (NYSE:AEE), and TAL Education Group, Inc. (NYSE:TAL). This group of stocks' market caps match SNPS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPOT,37,1470342,-5 FMS,5,3764,-4 AEE,30,1557458,12 TAL,20,1504129,-5 Average,23,1133923,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $1134 million. That figure was $1362 million in SNPS's case. Spotify Technology S.A. (NYSE:SPOT) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Synopsys, Inc. (NASDAQ:SNPS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SNPS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SNPS were disappointed as the stock returned 2.8% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.